The latest test for investors holding Ethereum (ETH 2.12%) is that its recent rally back toward its all-time high has suddenly run out of steam. Between Sept. 21 and Sept. 26, the coin’s value fell by roughly 13%, as the crypto market’s nerves frayed due to increasing economic doubts.

But has anything changed in terms of the asset’s long-term story, or is it still worth buying despite this sharp decline?

Image source: Getty Images.

This was just a quick reset

Short-term price moves tend to reflect traders’ positioning and headlines more than an asset’s fundamentals, and that holds true in cryptocurrency as well as in the stock market.

The headlines that pushed Ethereum’s price over the cliff were largely macroeconomic in nature. After the Commerce Department reported a slightly higher-than-anticipated inflation readout for August, some investors concluded that the Federal Reserve might be a bit less likely to further cut its benchmark interest rate this year, as had been widely expected. Interest rates are a key factor to watch because when they decline, it tends to incentivize institutional investors to increase their exposure to risk assets — first, because their cost to borrow money is lower, and second, because the returns they can then generate from safer assets like U.S. Treasuries are lower as well.

The reverse principle also applies, which was the issue here. When money is more expensive to borrow, large institutions have safer ways to get a yield, so riskier assets like Ethereum can fall out of favor. The calculation is even less favorable for those actors to invest in crypto when there’s an easy (if flawed) argument to make about an asset being expensive. Given that the price of Ethereum had risen to near its all-time high just before this latest decline,  some might conclude that the coin is pricey.

Now that we have a basic understanding of the forces that precipitated the pullback, let’s examine Ethereum’s investment thesis to see if it’s still in good order.

Everything is working under the hood

All signs point to Ethereum having plenty of vitality.

Even as its price wobbled, the value of tokenized real-world assets (RWAs) on Ethereum kept growing. On Sept. 29, there was about $9.1 billion in tokenized RWAs parked on the chain, up by 3% during the prior 30 days, with more than 93,000 holders participating. In the broader tokenization landscape across all chains, total on-chain tokenized RWAs recently reached about $31.5 billion, up roughly 9% month over month, suggesting that the tide of assets migrating to blockchains continues to rise. Some of that capital, clearly continues to accrue to Ethereum.

Stablecoins, the transactional cash of crypto, are also sending a signal that’s pointing in the right direction. On Ethereum alone, the stablecoin market cap sits near $175 billion, up about 10% during the past 30 days, which is a strong sign that settlement liquidity on the network is quickly expanding. With more stablecoin float, there is more on-chain capacity for lending, payments, and decentralized finance (DeFi) activity to resume when risk appetite returns. In other words, Ethereum’s status as the home of the DeFi sector is still unrivaled, and real capital is stacking up on its network, which is exactly what investors who hold it should want to see.

Ethereum’s ecosystem economics are thus continuing to evolve in the right direction. If the tokenization trend and its stablecoin base keep compounding, it could be a good buy now for long-horizon investors. The coin’s price will take care of itself once the market recognizes the capital that’s consistently accumulating on the network.

Nonetheless, if inflation reaccelerates and the Fed puts more rate cuts on hold, risk assets — including Ethereum — could slide further. And while the regulatory posture toward tokenization and stablecoins is improving in many markets, policy reversals can happen, and those would provide headwinds to the crypto sector.

Assuming that macro issues do not break the market’s risk appetite, the on-chain signals argue that the recent pullback is an opportunity to accumulate Ethereum rather than a reason to abandon ship.